Commercial insurance policies are designed to protect businesses from a wide range of risks, but no policy covers everything. Exclusions identify specific losses, circumstances or types of risk that are not covered by the policy.
An exclusion does not necessarily mean coverage is unavailable. In many cases, businesses can address excluded risks through a separate insurance policy, endorsement or specialized coverage.
Understanding common exclusions can help business owners identify potential gaps and make more informed decisions about their insurance program.
Wear and Tear and Maintenance
Commercial property insurance generally is not intended to cover routine maintenance or damage that develops gradually over time. Losses related to wear and tear, deterioration, rust, corrosion or a lack of proper maintenance may be excluded.
The purpose of property insurance is generally to respond to unexpected and accidental events, such as a fire, certain types of water damage or vandalism—not the normal aging of a building or its equipment.
Regular maintenance and risk management can help businesses reduce the likelihood and severity of these types of losses.
Flood, Earthquake and Other Catastrophic Events
Many commercial property policies exclude certain catastrophic events, including flood and earthquake. Coverage for these risks may be available through separate policies or endorsements, depending on the business’s location and circumstances.
Other significant events, such as war and certain acts of government, may also be excluded. Coverage for pandemics and losses resulting from government-ordered shutdowns can be particularly complex and depends heavily on the specific policy language and circumstances surrounding a loss.
Because these exclusions can vary, businesses should review their policies carefully to understand which catastrophic risks are addressed and which may require additional coverage.
Contractual Liability
Businesses enter into contracts regularly, including leases, vendor agreements, service contracts and other commercial arrangements. Commercial general liability (CGL) policies generally do not provide broad coverage for a business simply because it has assumed liability under a contract.
However, CGL policies can provide coverage for certain types of contractual liability, subject to the policy’s terms, conditions and exclusions. Some contracts may qualify for coverage under the policy’s definition of an “insured contract,” while other contractual obligations may remain excluded.
Before signing a significant contract, businesses should consider having their insurance professional review the insurance requirements and indemnification provisions to help identify potential coverage issues.
Building Code Upgrades
After a significant property loss, a business may discover that rebuilding or repairing a damaged building requires upgrades to meet current building codes or ordinances.
A standard commercial property policy may limit or exclude the additional costs associated with bringing a building up to current codes. Ordinance or law coverage can help address certain increased costs associated with demolition, construction or rebuilding required by applicable laws or building codes.
For businesses with older buildings, reviewing this coverage can be particularly important.
Illegal, Intentional and Fraudulent Acts
Insurance is generally not intended to cover losses resulting from intentional or fraudulent acts. Policies may also exclude losses associated with illegal activities or criminal conduct.
These exclusions can become particularly important when an employee, owner or other party intentionally causes damage or engages in fraudulent activity. The specific application of an exclusion depends on the circumstances and the policy language.
Professional Liability
Commercial general liability insurance is designed to address certain third-party bodily injury, property damage and personal and advertising injury exposures. It generally does not replace professional liability coverage for claims arising from professional services, errors or omissions.
For example, an architect, consultant, accountant or other professional may face a claim alleging that an error or omission in their professional services caused a client financial harm. Professional liability insurance, sometimes called errors and omissions (E&O) insurance, is designed to address these types of exposures.
Businesses that provide professional services should evaluate whether a separate professional liability policy is appropriate.
Pollution and Environmental Liability
Pollution and environmental exposures can be complex and potentially significant. Commercial general liability policies commonly contain pollution exclusions that limit coverage for certain claims involving the release or dispersal of pollutants.
Depending on the business’s operations, location and exposures, separate environmental liability coverage or an appropriate endorsement may be available.
Businesses that handle chemicals, hazardous materials, waste or other substances with environmental implications should pay particular attention to these exposures when reviewing their insurance program.
Product Liability
Businesses that manufacture, distribute or sell products can face claims alleging that a product caused bodily injury or property damage. While commercial general liability policies can provide product-completed operations coverage, the exact scope of protection depends on the policy language and circumstances of the claim.
Businesses with significant product exposures should not assume that a standard commercial policy provides every type of protection they may need. Product liability coverage and appropriate policy limits should be evaluated based on the products involved, distribution channels and potential severity of a claim.
Cyber Risks
As businesses become increasingly dependent on technology, cyber incidents can create both first-party and third-party financial exposures. Traditional commercial property and liability policies may contain exclusions or limitations for certain losses arising from cyber incidents.
Cyber insurance can provide coverage designed specifically for these risks. Depending on the policy, first-party coverage may address certain costs associated with responding to a cyber incident, while third-party coverage may address certain claims brought by customers, vendors or other affected parties.
Cyber coverage varies considerably between policies, so businesses should evaluate their specific technology and data exposures rather than assuming a standard commercial policy will respond.
Identifying Coverage Gaps
Exclusions are a normal part of commercial insurance. The important question is not simply whether a policy contains exclusions, but whether those exclusions leave your business exposed to risks that could have a significant financial impact.
Some excluded risks may be addressed through a separate policy, endorsement or other risk-management strategy. Others may be risks a business chooses to retain based on its circumstances and risk tolerance.
At Bender Insurance Solutions, we believe insurance should be approached as part of a broader risk-management strategy. Reviewing your policies periodically can help identify changes in your operations, emerging exposures and potential gaps in coverage.
Talk with your Bender Insurance Solutions team about the exclusions in your current policies and whether additional coverage may be appropriate for your business.
This article is intended for informational purposes only and should not be interpreted as insurance, legal, or risk management advice.
